Tuesday, March 20, 2012

Gold and Silver chart patterns: an update

Gold Chart Pattern

In the previous post two weeks ago, higher volumes on down days and negative divergences in the technical indicators had warned of a possible drop to the 200 day EMA. Gold’s price chart played out according to plan. After a day’s close below the 200 day EMA, gold’s price has moved up above its long-term moving average. Should this dip be used as a buying opportunity?

Technically, may be not yet. Note the volume bars of the last three trading days – they were falling as the price rose higher. The 20 day EMA has crossed below the 50 day EMA, and both moving averages are falling. All three technical indicators are looking bearish. The RSI is below its 50% level. The MACD is negative, and below its signal line. The slow stochastic is in its oversold zone. Some more correction can be expected, and a test of the Dec ‘11 low cannot be ruled out.

Silver Chart Pattern

Two weeks back, a ‘sell’ recommendation was given at 34. After dropping below 32, silver’s price has clambered up to 33, but on waning volumes. Despite the strong rally from Dec ‘11 low of 26 to Feb ‘12 high near 38 – a near 50% gain in 2 months - a bull market was not confirmed technically because the 50 day EMA failed to cross above the 200 day EMA. The 20 day EMA is getting ready to fall below the 200 day EMA.

The technical indicators are bearish. The RSI is below its 50% level. The MACD has fallen into negative territory below its signal line. The slow stochastic is trying to climb out of its oversold zone. All three EMAs are converging, which usually precedes a sharp move. That move is likely to be downwards.